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Article: May 2020: A Critical Period for Climate Change Litigation

Business Litigation Reports

A new wave of civil climate change lawsuits are about to enter a critical period. These suits represent a new trend to seek legal redress for harms allegedly caused by climate change and, for now, are targeted at the energy industry (though the allegations could be broadened to other sectors in the future). Plaintiffs in these cases have alleged numerous tort and commercial legal theories against energy companies to seek a variety of remedies, including money damages and so-called “abatement” plans to remediate alleged public nuisances caused by climate change. Some of the more high profile plaintiffs are states and municipalities suing energy companies based on common law tort theories. Other states and shareholders have brought actions based on securities or unfair trade practices law, alleging misrepresentations in the issuance of securities and false advertising. And other plaintiffs seek recognition of “fundamental rights” to a stable climate under federal and state constitutions. All of these cases are unfolding in multiple jurisdictions across the country, and the outcomes will have broad implications for energy companies, other industries, investors, and the government. 

 

I. Climate Change Claims Based in Tort

To address harms potentially caused by climate change, some municipalities seek to use litigation to fund new infrastructure spending designed to protect their communities. The claims by these municipalities assert that the various defendants’ actions led to increased emissions of greenhouse gases (“GHGs”), which have caused Earth’s climate to change, the effects of which—rising sea levels, more frequent and intense storms, etc.—have and will continue to cost state and local governments money to mitigate. For example, Oakland and San Francisco seek money to build a seawall to combat rising tides, City of Oakland v. BP P.L.C., 325 F. Supp. 3d 1017 (N.D. Cal. 2018); the City of New York seeks money to safeguard public utility infrastructure from storms, City of New York v. BP P.L.C., 325 F. Supp. 3d 466 (S.D.N.Y. 2018); the state of Rhode Island wants compensatory damages to pay for efforts to stormproof dams, roads, ports, water supply infrastructure, etc., Rhode Island v. Chevron Corp., 393 F. Supp. 3d 142 (D.R.I. 2019). Many plaintiffs also seek future abatement to prevent defendants from further fossil fuel extraction.

Plaintiffs in these tort cases have developed a number of legal theories: strict liability/negligent design or failure to warn of the adverse effects of fossil fuel combustion; trespass for causing flood waters and extreme precipitation to enter the plaintiffs’ lands; impairment of public trust; and private nuisance. In addition, many plaintiffs also seek to use public nuisance theories. Public nuisance requires plaintiffs to show that defendants unreasonably interfered in a substantial way with some public right, such as public resources, safety, or health. Plaintiffs in other mass torts have also sought to use public nuisance law in a similar way, with varying results. Examples include tobacco, opioids, lead paint, pollution, and firearms litigation. 

However, the current lawsuits are not the first attempt to use public nuisance law to address issues allegedly causes by climate change. In American Electric Power Co., Inc. v. Connecticut, 564 U.S. 410 (2011), Connecticut brought public nuisance claims based in federal common law against numerous power plants whose burning of fossil fuels emitted GHGs, allegedly causing interference with the Connecticut public’s rights to enjoy their lands, infrastructure, and health. In a unanimous decision authored by Justice Ginsburg, the U.S. Supreme Court held that the federal Clean Air Act (CAA) and consequent EPA regulations directly regulated the emissions of pollutants from power plants, and were thus Congress’s and the Executive’s solution to the issue of GHG emissions (which the Court held were potential pollutants covered under the CAA in a prior case, Massachusetts v. EPA). The Court ruled therefore that the CAA displaced federal common law claims against emitters of GHGs , ending Connecticut’s suit.

The next year, the Ninth Circuit extended the holding of AEP in Native Village of Kivalina v. ExxonMobil, 696 F.3d 849 (9th Cir. 2012). The Alaskan Village of Kivalina brought similar claims as Connecticut, except they targeted not only GHG emitters, but also energy producers and extractors—i.e. oil and gas drillers. The Ninth Circuit held the distinction to be insignificant: “federal common law is not just displaced when it comes to claims against domestic sources of emissions but also when it comes to claims against energy producers’ contributions to global warming and rising sea levels.” County of San Mateo v. Chevron Corp., 294 F. Supp. 3d 934, 937 (N.D. Cal. 2018) (summarizing Kivalina). 

But public nuisance theories in the new wave of climate change lawsuits seek to avoid the AEP holding, which did not decide whether state-law-based tort claims were displaced—only claims based in federal law. So now plaintiffs have changed tack, seeking instead to recover by pleading state-common-law claims and purporting to eschew federal common law. 

Procedural Skirmishes. The cases pressing these tort theories are still developing. Thus far, the most hard-fought battles have centered on procedural questions, though some cases are heading into a period where they will potentially be adjudicated on the merits. 

The primary issue, as of now, remains whether these cases belong in federal or state court. For each lawsuit brought in state court, the energy defendants have removed to federal court, arguing that what the plaintiffs actually are alleging are violations of federal common law, which exclusively governs transboundary pollution under AEP. 

The main basis for removal is the corollary to the well-pleaded complaint rule governing federal question jurisdiction: the artful-pleading doctrine. This rule states that a plaintiff may not defeat removal by omitting to plead necessary federal questions in a complaint. The artful-pleading doctrine allows judges to see through  state-law claims that actually raise federal-law issues. And that is important, because the Supreme Court has already determined that the Clean Air Act displaces federal common law tort claims. But district courts have so far split on whether plaintiff-municipalities are indeed alleging federal-law claims. 

Two federal district courts have found these tort claims do in fact allege federal—and not state—causes of action. In Oakland, the cities of Oakland and San Francisco sued BP and the other major oil companies in California state court. They asserted a single claim for public nuisance under California state law, seeking an equitable abatement fund to build a seawall to mitigate harms caused by rising sea levels and other consequences of global warming. After defendants removed to federal court, the district court denied remand, finding that plaintiffs’ claims, if any, were “governed by federal common law.” In City of New York, S.D.N.Y. soon followed with a similar ruling.

But plaintiffs have won similar  remand battles in other jurisdictions: County of San Mateo, Rhode Island, Boulder v. Suncor Energy, 405 F. Supp. 3d 947 (D. Colo. 2019),  and Mayor & City Council of Baltimore v. BP p.l.c., 388 F. Supp. 3d 538 (D. Md. 2019). In Baltimore, the court remanded Baltimore’s claims, rejecting the defendants’ arguments that the public nuisance claim was necessarily governed by federal common law. Instead, the court gave deference to the complaint’s reliance on state law and explicitly rejected the Oakland court’s approach, which it argued was “at odds with the firmly established principle that ordinary preemption does not give rise to federal question jurisdiction.” The Fourth Circuit, in Baltimore, was the first appellate court to address this issue and recently affirmed the District of Maryland’s remand order in an opinion narrow in scope, holding federal officer removal was not warranted under the statute. 952 F.3d 452 (4th Cir. 2020). The Supreme Court could potentially resolve an important issue presented in the case regarding whether federal courts of appeals have plenary review of all removal bases once one basis is properly appealed. 

The battle over whether the claims belong exclusively in federal court are hard fought and for good reason: major hurdles plague plaintiffs under federal law that may not exist under various state laws. For example, in Oakland, the court dismissed the claims against non-California-domiciled defendants for lack of personal jurisdiction on the basis that plaintiffs’ claims did not arise out of or relate to defendants’ forum-related activities. The court concluded: “It is manifest that global warming would have continued in the absence of all California-related activities of defendants.” Also in Oakland, the court held that political question doctrine strips the court of jurisdiction over claims implicating international causation, i.e., “the conduct and emissions contributing to the nuisance [that] arise outside the United States, although their ill effects reach within the United States.” The court dismissed plaintiffs’ claims because it found they were “foreclosed by the need for federal courts to defer to the legislative and executive branches when it comes to such international problems.” 

As to the four cases remanded back to state court, the next big question (pending the result of the appeals) is whether the plaintiffs’ state-law claims are displaced by the CAA. This question was expressly left open by Supreme Court’s holding in AEP, which solely held that federal common law claims were displaced. The question turns on interpretation of the CAA and CWA savings clauses and whether those provisions preserve state causes of action for climate change. The answer is still to come, but should the courts find the suits displaced, it could spell an end to common-law climate-change suits. 

For those plaintiffs who obtained remand back to state courts, proceedings in some cases have already started back up in state court. For example, the defendants have already filed a motion to dismiss in City of Baltimore. Even so, defendants are still working to overturn the remand orders. Defendants have sought certiorari from the U.S. Supreme Court in City Baltimore, and we are awaiting the Ninth Circuit’s decisions in Oakland and San Mateo, the Second Circuit’s in City of New York, the First Circuit’s in Rhode Island, and the Tenth Circuit’s in Boulder. Given the potential for a split, the issue could ultimately reach the high court.

 

II. Climate Change Claims Based on Commercial Law

Another type of climate-change litigation involves states and shareholders pursuing claims for securities fraud and unfair trade practices against energy companies. A key example is a lawsuit filed by the State of New York against ExxonMobil in New York state court alleging violations of the Martin Act, a state securities law prohibiting alleged fraud and misrepresentation.  New York v. ExxonMobil, 65 Misc. 3d 1233(A) (N.Y. Sup. Ct. 2019). New York claimed that, from December 2013 through 2016, “ExxonMobil made various material written and oral misrepresentations and omissions that tended to mislead the public” about the way it internally priced risks related to global climate change. The core of the State’s theory was that ExxonMobil had allegedly told investors and the public that they would use a higher dollar figure than they actually used in practice when pricing assets and investment opportunities to account for the risks associated with climate change (thus making Exxon’s financial projections seem more resilient to the effects of climate change).

Knocking back the state’s claims, the state court, ruling from the bench after a trial, held that ExxonMobil had not violated the Martin Act. New York had not shown that alleged misrepresentations made in publications and investor presentations were material to a reasonable shareholder. In October 2019, Massachusetts filed suit in its state court alleging similar alleged acts against ExxonMobil. Massachusetts v. Exxon Mobil Corporation, No. 19-3333 (Sup. Ct. Mass. Oct. 24, 2019). Notably, Massachusetts’s claims all fall under its Consumer Protection Act (which most states have some version of). Massachusetts also alleges ExxonMobil engaged in false consumer advertising not related to securities. The state argues ExxonMobil engaged in false advertisements intended to “greenwash” the company (by falsely suggesting ExxonMobil was a leader in the effort to solve climate change).

Shareholder derivative and class action suits are also cases to keep an eye on as climate change litigation continues to evolve. The first wave of cases are shareholder derivative actions that have been initiated against the corporate directors and officers of ExxonMobil in Texas federal court. Multiple suits seek to hold officers and directors liable for misleading shareholders on the value of its reserves and impact of climate change, based on theories of breach of fiduciary duty, unjust enrichment, and the 1934 Securities Exchange Act. See, e.g., Complaint, Von Colditz v. Woods, No. 19-cv-01067 (N.D. Tex. May 2, 2019).  These cases are still at an early stage. In Von Colditz, for example, the court has yet to rule on the defendants motion for stay pending the board’s consideration of the plaintiff’s litigation demand. 

 

III. Constitutional Rights to Stable Environment and Public Trust

A final example of climate change cases involve constitutional claims against state and federal governments asserting “fundamental rights” to a stable climate theory.

Of particular note is Juliana v. United States. The plaintiffs—a number of children—argue that the U.S. government authorized and subsidized the extraction of fossil fuels, the combustion of which led damaging climate change affecting plaintiffs by creating psychological harm, impairing recreational interests, exacerbating medical conditions and damaging property. In so doing, they argue the government: (i) violated the public trust; (ii) violated a fundamental constitutional right to a clean environment and stable climate; and (iii) violated children’s right to equal protection. Plaintiffs seek an injunction ordering the government to implement a plan to “phase out fossil fuel emissions and draw down excess atmospheric [CO2].”

A Ninth Circuit panel held that the plaintiff-children lacked Article III standing. 947 F.3d 1159 (2020). Interestingly, the court noted in dicta that the children had alleged injury-in-fact and causation, but held the plaintiffs failed to show the claims are redressable by an Article III court, relying on separation of powers and on the political question doctrine, as we saw in Oakland and New York. Notably, the dissent stakes out the position that the plaintiffs have a fundamental right to the perpetuity of the Republic. The dissent further argued that Article III courts may trump separation of powers in order to redress fundamental rights preserved by the Constitution—here the right to be free from the “willful dissolution of the Republic” by way of promoting catastrophic climate change. The plaintiffs have sought rehearing en banc, which has yet to be decided. 

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So where does climate change litigation go from here? A key factor appears to be whether or not the U.S. Supreme Court will be willing to accept defendants’ appeals asserting that the plaintiffs’ tort claims are barred by the AEP holding. If the Court accepts such appeals, it could potentially represent an end to “public nuisance” climate change cases. However, if the Court does not, the defendants will proceed to litigating the cases on the merits in a multi-jurisdictional manner under a variety of different state law regimes. We can also likely expect that there will be continued efforts by plaintiffs (both private and governmental) to assert securities and commercial law claims. The results of these cases will not only be critical for the energy industry, but for other U.S. industries, investors, and the government.